Earned Tax Credit (ETIC)
The Earned Income Tax Credit (ETIC) is considered one of the largest and least controversial welfare programs. The ETIC sprouted out of the 1960s War on Poverty as an answer towards concerns over the increasing number of welfare programs of that era. The program has evolved from an initially modest tax credit into the U.S. government’s largest and most important poverty prevention tools. This brief background paper will describe ETIC’s history, eligibility requirements, and the positive/negative effects of the tax credit.
ETIC was enacted in 1975 by Senator Russell Long. Long worked to create a program that would counter the increasingly popular Negative Income Tax (NIT). The NIT was viewed as a “universal” anti-poverty program that guaranteed
a minimum standard of living to all. However, Long worried that the NIT provided the largest benefits to those who did not work, and would decrease the amount of poor within the workforce. Therefore, the ETIC was set up to provide assistance to the working poor and not to those outside the labor force. ETIC has expanded beyond its modest origins as subsidies were increased in 1986, 1990, 1993, 2001, and 2009.
ETIC benefit amounts are dependent on a recipient’s family situation and income. A qualifying child must meet relationship, age, and shared residency requirements. The second requirement is earned income. Income must be below a certain threshold in order to earn the maximum credit. In 2014, the threshold was $48,368 per year for a family of two children with two parents filing jointly. The earnings of both spouses is counted towards the threshold. There are also secondary requirements that affect credit amounts. For example, families unearned income are ineligible for ETIC if earnings are above $3,300.
Since its inception, the ETIC has garnered much praise and scorn. Long term research has shown large positive impacts on low-income family incomes, dramatic improvements on child poverty, education, and health. ETIC extensions have helped increased work levels amongst single parents. However, concerns have been raised over just how effective the ETIC has been on labor force participation amongst married couples. Both incomes count towards the tax credit, if one member’s income reaches the threshold than the other might decide to remain outside the labor force.
ETIC was enacted in 1975 by Senator Russell Long. Long worked to create a program that would counter the increasingly popular Negative Income Tax (NIT). The NIT was viewed as a “universal” anti-poverty program that guaranteed
a minimum standard of living to all. However, Long worried that the NIT provided the largest benefits to those who did not work, and would decrease the amount of poor within the workforce. Therefore, the ETIC was set up to provide assistance to the working poor and not to those outside the labor force. ETIC has expanded beyond its modest origins as subsidies were increased in 1986, 1990, 1993, 2001, and 2009.
ETIC benefit amounts are dependent on a recipient’s family situation and income. A qualifying child must meet relationship, age, and shared residency requirements. The second requirement is earned income. Income must be below a certain threshold in order to earn the maximum credit. In 2014, the threshold was $48,368 per year for a family of two children with two parents filing jointly. The earnings of both spouses is counted towards the threshold. There are also secondary requirements that affect credit amounts. For example, families unearned income are ineligible for ETIC if earnings are above $3,300.
Since its inception, the ETIC has garnered much praise and scorn. Long term research has shown large positive impacts on low-income family incomes, dramatic improvements on child poverty, education, and health. ETIC extensions have helped increased work levels amongst single parents. However, concerns have been raised over just how effective the ETIC has been on labor force participation amongst married couples. Both incomes count towards the tax credit, if one member’s income reaches the threshold than the other might decide to remain outside the labor force.